Congress needs to take a hard look at credit practices

Right before Christmas, the Consumers Union spearheaded a campaign calling for credit card reforms. It now appears as if some of the issues they surfaced are being looked into by the Senate Committee on Banking, Housing and Urban Affairs.

And Consumers Union isn't alone - a lot of other consumer groups are pretty much calling for the same kind of corrective action for the industry, here.

But it's not only consumer groups that are up in arms. Merchants seem to be, also.

The Merchants Payment Coalition is also applauding this development and is calling for a "deeper look" into interchange fees, which they say cost consumers $30 billion a year. Notably, they state that this amount represents twice the amount the industry charges for late fees, which have also been under attack by the consumer groups mentioned above.

The describe these fees as:

Americans pay a hidden fee on virtually every transaction they make, whether they use a credit card or not, costing consumers tens of billions of dollars a year. This fee, called interchange, is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time a consumer uses a credit or debit card to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent for credit card and signature debit transactions. These hidden fees drive up the cost of goods and services for all consumers whether they pay with plastic, cash or check.

Merchants Payment Coalition page about this, here.

The National Retail Federation is also very "passionate" about interchange fees.

In July, they issued a press release, stating:

The National Retail Federation welcomed a hearing on soaring credit card interchanges rates scheduled to be held today by the Senate Judiciary Committee. The hearing is expected to focus on the $26.3 billion in credit card interchange fees collected each year, the impact of the fees on American retailers and consumers and whether the price-fixing practices involved in setting interchange fees violate federal antitrust laws.

National Retail Federation press release, here.

Since this release was issued in July stating that interchange fees brought in 26.3 billion, I guess the current estimates of $30 billion means that these fees were more profitable than anticipated for the credit card issuers?

We seem to be living in a world, where the amount of debt carried by consumers is at an all time high and fraud is running rampant. Critics claim that credit is issued too easily and not very responsibly.

Please note, this doesn't only apply to the credit card industry, we are (also) beginning to see the impact in the mortgage industry - where defaults are at a record high. Probably the result of too many people "flipping properties," and what appears to have been a record amount of "mortgage fraud."

We are also seeing a growing amount - especially with all the data breaches - of payment card (credit/debit) card fraud.

It makes one wonder how much longer it will be before we hit "bottom," and an economic disaster is the result. If this happens - who will pay the cost?

Our leaders need to examine this problem carefully - and take appropriate action to fix it. Passing the costs of it between businesses (and ultimately consumers) will only work for so long.